“With a brick and mortar restaurant the profit margin is about 4%. With a truck, it’s 25%.”

Really? That doesn’t sound right…

First off, where do these numbers come from? I emailed the reporter to ask, but she never replied. Taken on face value, though, this doesn’t seem possible. First off, 4% sounds kind of low- even as an average. Does that take into account franchises? If it does, that’s not a fair comparison. After all, if you have dreams of franchising- 10 restaurants each making 4% is going to be a better business model than one truck making a so-called 25% profit margin. And as we all know, the permit situation makes it practically impossible to franchise a truck on any meaningful scale here in New York City.

Also, with restaurants, that 4% margin most likely takes into account a restaurant payroll, whereas most street carts are operated by their owners. So, while some street carts might be making a 25% profit margin, more than likely the owner of that cart is working 18 hours a day, cooking and serving food (hard labor), for that money. If the owner is paying somebody to run the cart for them (or including their “salary” as an expense), that profit margin isn’t going to be quite so high.

But the real misleading part is this… a truck will never do the same kind of volume as a brick and mortar store. So even if those profit margins are correct (which I highly doubt), it’s still tricking you into believing that a street truck is more profitable than a brick and mortar. And that is flat out not true. You can’t do the same volume on a truck that you can do out of a brick and a mortar. You have a limited space, a limited sales window, and your sales are far more effected by the weather. In other words, nobody is going to meet a friend, for a cup of coffee or dessert at your truck on a cold day. At 3pm, there are still people inside of Pret. To put it even more simply, I’d rather have 4% of $1,000,000 than 25% of $100,000.

I know that the Cupcake Stop Truck says they’re making money. But it’s not just from selling cupcakes on the street. It’s also from “catering birthday parties and Bar Mitzvahs”. And, they’ve gotten more PR than any other truck in New York City. (Of course they’ve paid a lot of money for some of that PR, and have a compelling law school to cupcakes story to peddle.) Most new trucks aren’t going to get that lucky. Besides, if the Picnic Smoked Truck, or the Cupcake Stop Truck made so much money on its own, why would both be planning to open brick and mortar stores next year?

I’m not saying you can’t make money from a truck, but I’m sick of the media making it out to be more profitable than restaurants. It’s dangerous, not only for the future of an industry that the city would probably like to see go away, but also for entrepreneurs who are looking to jump in while the water is supposedly hot.

I’m all for more street vendors. I love eating off the streets. But if you decide to go into this business, it should be because you love to make it as much as I love to eat it. If you don’t have a strong desire to ride around in a truck and sell food on the street, the kind of money you’ll make from doing it isn’t going to change your mind. It is just as risky financially to open a truck as it is to open a real restaurant, but with a truck there is going to be far less upside here in New York City. And if you’re doing it just for the money, it won’t be long before you too start looking into how much a lease in the Lower East Side costs.

4 Comments

The reporter’s use of profit margin is very ambiguous. It could mean (sales – COGS) / sales, or it could mean net income / sales. She doesn’t really say, and uses that ambiguity to make a false impression.

However, if you sell low cost items at a significant markup (like baked goods or cupcakes) and are business savvy about other costs I can see a 25% net income margin being possible.

Google seems to confirm the 4%. I found a few references including this one, “Based on the 2004 Restaurant Industry Operations Report published by Deloitte & Touche LLP, average pre-tax profit margins range from 4-7% (4% for Full Service and 7% for Limited Service restaurants).” I agree with you though, 4% of a big number is much better than 25% of a small number….